Europe

United States

Pyrite case referred to CJEU

In James Elliot Construction v Irish Asphalt Ltd [2014] IESC 74, which involved the supply of defective infill material, the Supreme Court held that an appeal by Irish Asphalt should be dismissed, but such an order was subject to any issue of European law which the Court was referring to the Court of Justice of the European Union (CJEU).

The Supreme Court has asked certain questions concerning the interpretation of the EU Technical Standards Directive 98/34, including whether compliance with the EU "standard" in relation to construction products can only be established when tests on the material are carried out at the time of production and/or supply or breach of the standard or can be proven by tests conducted later.

Facts
In this appeal Irish Asphalt put forward a number of interrelated arguments. Whilst accepting that the contract between the parties contained the terms implied by the Sale of Goods and Supply of Services Act 1980, it denied that the facts found amounted to a breach of the implied terms as to merchantability or fitness for purpose.

Furthermore it contended that under the provisions of the contract, any liability for breach was limited by the limitation of liability clause in its terms and conditions of sale, which limited liability for defective goods to the cost of their replacement.

In respect of the findings of breach of the standard, and accordingly a failure to supply infill (clause 804 infill) in accordance with the contract, Irish Asphalt contended that such breach was not established in the only manner in which such an issue could be determined and that accordingly the only admissible evidence heard in the High Court was of compliance with the standard.

Finally, Irish Asphalt argued that it was not open to the High Court to make any finding of a breach of the terms implied by the 1980 Act and in particular to make a finding that there was a breach of implied terms as to inertness, durability and strength, because to do so was to create a new domestic standard which was impermissible, as a matter of EU law.

Decision
The Supreme Court held that, as a matter of national law, Irish Asphalt's appeal should be dismissed, but such an order was subject to any issue of European law which the Supreme Court was referring to the CJEU.

The Supreme Court upheld the Trial Judge's finding that there was a breach of the implied term as to merchantable quality pursuant to s. 14(2) of the 1893 Act (as inserted by s.10 of the 1980 Act).

However, it set aside the High Court finding that the material was in breach of the implied condition concerning fitness for purpose pursuant to s. 14 (4) of the 1893 Act (as substituted by s. 10 of the 1980 Act). It concluded that no implied condition arose under s. 14(4).

The Supreme Court found that whilst the condition as to merchantable quality arises once there is a sale of goods in the course of business, the term implied under s.14 (4) does not arise until the buyer does something (i.e. he/she expressly or by implication makes known to the seller a particular purpose for which the goods are being sought. In addition the section presumes reliance on the seller's skill and judgment). The Supreme Court concluded that whilst the evidence showed that the Irish Asphalt "probably knew that one of the purposes for which the clause 804 was ordered by Elliott Construction was to be used under the building at foundation level, there was no evidence from which it could be said that it was made known to the seller by the buyer as envisaged by s. 14(4)". By the same token, it was concluded that the circumstances did not show that Elliot Construction relied on Irish Asphalt's skill or judgment. However, this conclusion on s. 14(4) did not affect the outcome of the case.

The Supreme Court rejected Irish Asphalt's contention that any liability to Elliot Construction was limited to the cost of replacement of the replacement infill material. It upheld the Trial Judge's finding that the terms and conditions on the delivery dockets were not incorporated into the contract between the parties, by signature or reference.

EU law
The Supreme Court referred certain questions to the CJEU, including whether the interpretation of the national and EU standard in relation to construction products is a matter upon which a preliminary ruling may be sought from the CJEU.

If the answer to that question is yes, the CJEU must then decide whether compliance with that EU standard can only be established when approved tests on the material are carried out at the time of production and/or supply or breach of the standard or can be proven by tests conducted later.

The CJEU will also be asked whether a national court is obliged to disapply national law, by implying terms as to merchantability and fitness for purpose, pursuant to our Sale of Goods and Supply of Services Act 1980, on grounds that the statutory terms create standards which have not been notified in accordance with the provisions of the EU Technical Standards Directive 98/34.

The reference to the CJEU highlights the complexity of the legal issues concerning testing and standards.

The judge summarised the implications of Irish Aphalt's arguments as follows:

"…if Irish Asphalt is correct the effect of the adoption of a standard is that if a product is produced in accordance with the standard then it is presumed fit for purpose, and indeed that presumption could only be rebutted with difficulty, if at all, by proof by tests at the time of manufacture and supply that the product did not in fact meet the standard (even if the testing showed that the product was defective more generally). All claims, whether contractual, tortious or statutory would be reduced to the question whether the product complied with the standard, as assessed by the tests approved, and at the time of supply" [rather than at the point when an alleged defect arises].

Comment
Irish Asphalt's contentions are both novel and extraordinary, and, if correct, could have major implications for sale of goods claims, as well as other types of claims.

The judgment contains some interesting comments on the nature of references to the CJEU. The judge noted that the threshold for referring questions to the CJEU is low (CILFIT Case C-283/81). The judgment indicates that a case that is otherwise clear as a matter of Irish law can be referred to the CJEU simply because it is not clear that it does not conflict with some part of the corpus of EU law, and the absence of any authority or academic support of the issue is an argument as to why the views of the CJEU should be obtained.